Of Interest

Wednesday, December 18, 2013

The economy of Japan is the third largest in the world by nominal GDP the fourth largest by Purchasing Power Parity and is the world's second largest Purchasing Power Parity According to the International Monetary Fund the country's per capita GDP (PPP) was at $35,855 or the 22nd highest in 2012. Japan is a member of Group of Eight. The Japanese economy is forecasted by the Quarterly Tankan survey of business sentiment conducted by the Bank of Japan.Japan is the world's 3rd largest automobile manufacturing country, has the largest electronics goods industry, and is often ranked among the world's most innovative countries leading several measures of global patent filings. Facing increasing competition from China and South Korea, manufacturing in Japan today now focuses primarily on high-tech and precision goods, such as optical instruments, Hybrid vehicles, and robotics.. Beside the Kanto region, the Kansai region is one the leading industrial clusters and the manufacturing center for the Japanese economy.Japan is the world's largest creditor nation, generally running an annual trade surplus and having a considerable net international investment surplus. As of 2010, Japan possesses 13.7% of the world's private financial assets (the 2nd largest world) at an estimated $14.6 trillion. As of 2013, 62 of the Fortune Globle 500 companies are based in Japan.Overview of economy: In the three decades following 1960, Japan ignored defense spending in favor of economic growth, thus allowing for a rapid economic growth referred to as the Japanese post-war economic miracle. By the guidance of Ministry of Economy, Trade and Industry, with average growth rates of 10% in the 1960s, 5% in the 1970s, and 4% in the 1980s, Japan was able to establish and maintain itself as the world's second largest economy from 1978 until 2010, when it was supplanted by the People's Republic of Japan. By 1990, income per capital in Japan equalled or surpassed that in most countries in the West.However, in the second half of the 1980s, rising stock and real estate prices caused the Japanese economy to overheat in what was later to be known as the Japanes asset price bubble caused by the policy of low interest rate by Bank of Japan. The economics Bubble came to an abrupt end as the Tokyo Stock Exchange crashed in 1990–92 and real estate prices peaked in 1991. Growth in Japan throughout the 1990s at 1.5% was slower than growth in other major developed economies, giving rise to the term Lost Decates. Nonetheless, GDP per capita growth from 2001-2010 has still managed to outpace Europe and the United States. But Japan Public-Dept remains a daunting task for the Japanese government due to excessive borrowing, social welfare spending with an aging society and lack of economic/industrial growth in recent days to contribute to the tax revenue. Japan had recently embraced the new strategy of economic growth with such goals to be achieved in 2020 as expected. The modern ICT industry has generated one of the major outputs to the Japanese economy. Japan is the second largest music market in the world (for more, see Japan Hot 100). With fewer children in the aging Japan, Japanese Anime industry is facing growing Chinese competition in the targeted Chinese market. Japanese Manga industry enjoys popularity in most of the Asian markets.Although many kinds of minerals were extracted throughout the country, most mineral resources had to be imported in the postwar era. Local deposits of metal-bearing ores were difficult to process because they were low grade. The nation's large and varied forest resources, which covered 70 percent of the country in the late 1980s, were not utilized extensively. Because of political decisions on local, prefectural, and national levels, Japan decided not to exploit its forest resources for economic gain. Domestic sources only supplied between 25 and 30 percent of the nation's timber needs. Agriculture and fishing were the best developed resources, but only through years of painstaking investment and toil. The nation therefore built up the manufacturing and processing industries to convert raw materials imported from abroad. This strategy of economic development necessitated the establishment of a strong economic infrastructure to provide the needed energy, transportation, communications, and technological know-how.Deposits of gold, Magnesium, and silver meet current industrial demands, but Japan is dependent on foreign sources for many of the minerals essential to modern industry. Iron ore, copper, bauxite and alumina must be imported, as well as many forest products.

Thursday, December 12, 2013

The attractiveness of Tokyo real estate
Over the past nearly 2 decades after the bubble economy collapsed,
Japan had been experiencing deflationary and poor economic conditions.
But the economy has begun to pick up due to Abenomics, the first
economic policy of Abe government. Since then, Japanese real estate has
been attracting attention from overseas investors.
The key factor affecting this phenomenon is a progress of yen
depreciation triggered by the easy monetary policy from Bank of Japan.
Yen rate which was around 80yen/USD is now depreciating to nearly 100
yen/USD. The acquisition cost is now becoming lower, which is relatively
attractive for overseas real estate investors. The Tokyo real estate,
in particular, is attractive for its resistance to earthquake, safety,
city power, and the quality of buildings such as interior decoration.
In this article, value of real estate in Tokyo will be discussed from the viewpoints of profitability, quality, and city power as compared to overseas real estate.

1. Profitability
The income of property investments is divided into two components:
(1) cash inflow from monthly rent revenue and (2) capital gain/loss, the
difference between the acquisition cost and the sale price of the
property. Due to the maturity of Japanese real estate market, real
estate prices are relatively stable in Japan compared to overseas
market. Because of prolonged deflationary economy and fewer foreign
capital inflows, Japanese real estate prices fluctuated within a small
range over the past several years. The opposite situation can be seen in
Hong Kong, a high risk/high return market, where foreign capital flew
in looking for higher returns in its volatile market. Although we cannot
expect large appreciation of real estate price in Tokyo, we do not expect its depreciation either.
The stability of profitability comes from stable income gains by rent
revenue. For example, annual yield of rent revenue in Hong Kong is
2.5%~2.8%, whereas it is close to 4% in Tokyo.
As there are politically unstable countries in Asia, wealthy people
prefer city of Tokyo which offers a politically stable environment for
the purpose of risk diversification. New York city has little room for
development, thus the transactions are very limited at present. London
is popular as a good investment location for its stable income gain
since it’s difficult to change rent. However, taxation was strengthened
in March, 2012 — 7% of stamp tax was imposed at the time of acquisition
for properties for the amount of more than 2 million pounds. Taxation is
strengthened in Singapore as well to curb a sharp increase in housing
prices.
On the other hand, the Japanese real estate transaction is not highly
regulated nor subject to special taxation on overseas investors which
is very appealing for foreigners. As such, real estate in Tokyo
is very attractive as it generates a high return from a stable income
revenue instead of a capital gain due to low volatility of real estate
prices.

2, Quality
Japanese real estate stands at the highest level in the world in
terms of resistance to earthquake, disaster prevention, security and so
on. The global earthquake-resistant standard is that buildings will be
uncollapsible when earthquakes occurs. Since Japan is subject to
frequent earthquakes, the buildings are designed to minimize rolling in
addition to avoid collapsing.
Japanese style
interior decoration has a big freedom of the layout, and a high value
is set at the facilities of the kitchen as compared to other Asian
countries where the eating out culture develops, and a bathroom facility
is in the world highest level as well.
Although Japanese real estate is inferior to European and American
ones from energy conservation perspective, the quality of Japanese real
estate stands out among all.

3. City power
According to world aggregate city ranking in “Global Power City
Index, 2012 edition ,” Tokyo is ranked at the fourth place in the world
in terms of city power next to London, New York, and Paris, and, above
all, is ranked at the first place in terms of living environment and
working environment. It stands at the world top level in the field of
economy and environment. Tokyo has a well maintained transportation
network and good distribution of a large number of convenience stores
which produce comfortable living environment. Because of that, the
number of Michelin star restaurant in Tokyo
is 243 exceeding Paris of 73 restaurants by more than three times (by
“the Michelin Guide” of each city). These are the evidence of Tokyo’s
high quality of dining culture and environment.
In addition, Tokyo becomes the world’s best working place in terms of
the amount of income paid, accumulation of the companies, the numbers
of employment opportunities, and low unemployment rate. It is certain
that these factors will contribute favorably to the value of Tokyo.
Furthermore, we can anticipate further improvement of city power by the
developments of infrastructure, the enlargement/enhancement of housing
and amusement facilities given the decision of Tokyo Olympics to be held
in 2020.

4.Volumes Swell
The volume of real estate transactions in Tokyo jumped 58
percent to $15.6 billion in the first nine months of this year,
according to a report by Jones Lang LaSalle Inc. That’s $400
million short of New York, which ranked second with $16 billion
after a 16 percent decline. Paris was fourth with $10.9 billion,
while London topped the list with $23.2 billion.
Tokyo’s office vacancy rate, a measurement of unoccupied
space, dropped to 7.56 percent last month from 7.9 percent in
September and was at its lowest since June 2009, according to
broker Miki Shoji Co. The gauge reached a record 9.43 percent in
June 2012.
Commercial land values in Japan’s three biggest
metropolitan areas rose for the first time since 2008 this year,
gaining 0.6 percent, according to the land ministry’s annual
land survey report released in September.

5. Spreads
The spread on the Tokyo-based Real Estate being very good due to Japan having the lowest interest rates globally while enjoying solid yields from rental income.

“The overall office market is improving at a faster than anticipated rate which is very positive
for the REIT market,” “We
refinanced the debt earlier because we see now as a good
timing.”
Abe’s economic stimulus campaign includes monetary stimulus
to encourage finance activity. Stepped-up borrowing by Japanese
companies has to translate into increased capital spending for
the measures to succeed in ending deflation and reviving the
world’s third-largest economy.

Summary
Tokyo real estate is characterized by a stable and profitable income
gain, strong resistance of buildings to earthquake, well designed of
disaster prevention, good security and so on. In terms of city power,the
economic condition and living environment, Tokyo is ranked in the world
top place.
Given these facts, it would be obvious that real estate in Tokyo is very attractive. Japanese real estate is certainly the best choice in future investments.

TOKYO (Nikkei)--The term Abenomic's has been coined by economic pundits to describe the potential result of Prime Minister Shinzo Abe's expansionary economic policies: Asset Bubble Economics, or "ABE."

Abe's penchant for policies that risk creating asset bubbles was already noticeable during his first time as prime minister in 2006.

When it was certain that he would be coming back as prime minister, the Japanese stock market responded with a rally. Real estate markets are beginning to explode again like it was in the 1980's, as investors are flooding it to capitalize on the effects of Abenomics on asset prices.

Larger Impact

The Liberal Democratic Party's return to power landslide lower house victory happened just when the real estate market was emerging from the "2012 problem," a much-feared glut in the office building market caused by so many new office towers going up in 2012. Office rents had started showing signs of bottoming out.

True to his economic policy agenda, marked by huge public spending and aggressive monetary easing, Abe quickly clinched a deal with the Bank of Japan to set a formal inflation target of 2%.

Experts are pointing out that even this modest amount of inflation could trigger a steep upswing in property prices, which tend to fluctuate far more wildly than consumer prices.

Major Districts of Tokyo earmarked to Major Redevelopments completed before 2020 Olympics

Tokyo will hold the Olympic games in 2020, and each district in Tokyo
will be redeveloped to make them more attractive. This article
highlights the redevelopment activities in five popular districts in
Tokyo.

1. Shinjuku
Shinjuku station is an important interchange in Tokyo as it lies at the crossroads of major railway lines operated by five
railway companies: JR East, Keio, Odakyu, Tokyo Metro, and the Tokyo
Metropolitan Government Traffic Bureau. In addition, it is also lies at
the heart of the amusement and nightlife district. According to the
Guinness World Records, Shinjuku Station is the world’s busiest station
that serves an average of 3.64 million passengers per day!
The area surrounding Shinjuku Station is well developed, however the
rows of commercial facilities on both the east and west sides of the
station have been blamed for terrible congestion and traffic jams in the
area.
In response to the traffic congestion, an air space over the south
entrance/exit of the Shinjuku Station is currently being constructed: a
huge ground will be constructed over the station facilities, and a wide
variety of buildings and facilities, as well as pedestrian squares, taxi
stands, and long-distance bus stops will be erected on the ground In
addition, “New Shinjuku Station South Entrance Building,” a new landmark
is being erected on the south side of the Shinjuku Station; scheduled
for completion in 2016, this new building will accommodate office,
commerce, and cultural facilities.
As many people are moving to the areas around terminal stations such as
the Shinjuku Station, development and redevelopment activities are often
undertaken around these stations to make full use of the land and air
spaces in these prime locations.

2. Marunouichi and Otemachi
Marunouchi is a busy business district that has morphed into an
attractive shopping destination as well. While the number of passengers
who use the Marunouchi Station has not reached its full potential,
Marunouchi will certainly grow as Mitsubishi Estate Co., Ltd. will be
developing the Marunouchi district where they own lot of land. In
addition, Tokyo Station, which is close to the Marunouchi Station and
the Otemachi Station, is also capable of accommodating a large number of
commuters.
The Otemachi Station serves five subway lines and also provides good
traffic access. The area around the station is also concentrated with
the headquarters of many financial, insurance,
information/communication, and media companies.
Otemachi is unique as there is a big gap in the number of people in the
district during the day and night: while approximately 72,000 people
work there during the day, there are no registered residents living
there at night. The area functions just as an office town and thus no
residential environment improvement plan exists. Following the approval
of “Type 1 City Redevelopment Project at Otemachi 2 Chome” in August
2013, many old buildings and parking lots will be repaired in due time.

3. Shibuya
The Shibuya Station is another big terminal station like the Shinjuku
Station. The district of Shibuya has traditionally been youth centric,
but it has also been attracting people in their 30-40s since Shibuya
Hikarie, a large commercial facility, opened in April 2012. With the
commencement of the Fuku-Toshinsen and Tokyu Toyokosen railway lines,
Shibuya is part of a wide railway network that stretches from Saitama
and Yokohama. In 2013, the Tokyo Metropolitan Government approved three
urban projects: “Station Commercial District Development Plan,”
“Dogenzaka Redevelopment Plan,” and “Shibuya Station South District
Development Project.” These three projects call for the development of
more commercial facilities and offices; the increase and improvement of
parking lots, pedestrian decks and limousine bus terminals; and the use
of design architects for the design of pedestrian squares and low levels
of buildings.

4. Nihonbashi
As the Bank of Japan is headquartered at Nihonbashi, it is widely
thought to be a representative financial district in Japan. Erected in
2004, COREDO (which is the combination of the words Core and Edo)
Building erected at the Nihonbashi intercourse in 2004, was named in
hope that Nihonbashi will regain its role as the commercial center of
Tokyo today, just as it was in Edo eons ago.
Yaesu is a neighboring district of Nihonbashi; unlike Marunouchi, Yaesu
has not seen much redevelopment in recent times, hence, people getting
off at the Tokyo Station, are more likely to visit the Marunouchi
side,not the Yaesu side. If Yaesu, the opposite side of Marunouchi, is
redeveloped nicely, it will increase the footfall to Nihonbashi too.

5. Haneda International Airport
Compared to many other airports in the world, access to the Haneda
Airport from the city center is very good. In addition, the short
distance between the railway stations and airport check-in counters is
another advantage that has often been cited. Following the construction
of a fourth runway in 2010, and improved access to foreign countries,
the number of international flights is expected to increase by 50
percent to reach 86 flights a day by the spring of 2014.
Due to the limited number of landing slots
at Haneda, most international flights have been using the Narita
International Airport despite its inferior traffic access. However, in
recent years, Japan has been actively developing Haneda Airport into an
airport hub. If the Haneda Airport, is developed further as an
international airport, the number of visitors to Tokyo will increase.
Before investing in real estate, one should not only focus on the
property that one intends to buy, but should also take into
consideration the development plans and potential growth of the areas
surrounding the property.6. Hiyoshi

Hiyoshi is a part of the city of Yokohama, Kanagawa
Prefecture, Japan. It is located within Kōhoku Ward in the northeast of
Yokohama City.

It is served by Hiyoshi Station on the Tōkyū Tōyoko Line
and Yokohama Subway. It is approximately 22 minutes by train from
Shibuya, and 15 minutes from Yokohama, being located between
Moto-Sumiyoshi on the north and Tsunashima on the south. Both the Express and Commuter Limited
Express services stop at Hiyoshi.

Hiyoshi is the home of Keio University's Hiyoshi campus,
Yagami campus and Keio Business School. The main part of Hiyoshi
Campus is located directly to the right of the station exit across
Tsunashima Kaidō. The campus sprawls over a low hill and is most
remarkable for the many tall trees growing there. Yagami campus, located
only a short walk from Hiyoshi campus, holds the faculty of Science and
Technology.

The town shopping district is on the opposite side of the
station, the west side with includes a very dynamic and cosmopolitan precinct filled with a huge variety of fantastic restaurants and shops making Hiyoshi a highly sort after location to live. The town's main thoroughfares run out from the
station's Nishiguchi Square like the spokes of a wheel, though the
direction of traffic is generally toward the station. Sun Road runs
north (traffic south). Hamagin Dōri runs northwest. Chūō Dōri runs out
to the west (traffic east). And, Futsubu Dōri comes in toward the
station from the southwest. Hiyoshi is one of the most affluent suburbs in Tokyo and Yokohama.

Japans Economy Derived from 2020 Olympics
“Tokyo to host 2020 Olympics” has been the hottest headline in Japan.
Prior to the bid, Madrid and Spain were expected to have better
advantages of being chosen to host 2020 Olympics. Surprisingly, Tokyo
stood out in the competition – five interlocking rings will arrive Japan
in 2020.
It has been a long-cherished wish of the Tokyo metropolitan government and related industries in Japan
to host the Olympic games, and the Olympics fever has wide spreaded on
the locals. Hosting 2020 Olympics in Japan is not just a
dream-come-true, it is paving a road to tremendous economic
opportunities. Without a doubt, financial and investment industry is
cheering for the news too.

◉ Attractive Projects Derived From the Olympics 1: Improvement of Infrastructure
The stock price of major general construction companies, such as
Shimizu Corporation and Taisei Corporation, reached their highest values
for the year in August. Investors are also showing their more-than-ever
interest on the related projects.
The Tokyo metropolitan government had already determined to develop
and improve athletic facilities for events such as swimming, volleyball,
and badminton around Tokyo Bay if Tokyo were to host summer Olympics in
2020. Now the metropolitan government plans to invest additional 130
billion yen, including the improvement on Shinkansen (Bullet train)
tracks in Tokyo
and a new Tokyo Gaikan Expressway( has started and will be finished by
2020.) The development of logistical infrastructure, such as roads to
connect the Harumi area and inner city, are actively taking place.

◉Attractive Projects Derived From the Olympics 2: A Good Shot to End Deflation
It has been 56 years since last time Tokyo hosted a summer Olympics.
The economy was active and prosperous for a good period of time. The
2020 Olympics is likely to and is expect to stimulate the economy, just
like it did 56 years ago – win the bid to host Olympics, upward demands
for construction, salary increase then deflation ends. It is estimated
that hosting the summer Olympics in 2020 would bring economic effects of
37.9 billion yen to Tokyo and create 152,000 jobs. To Japan, this huge
income is more than just a good economic shot.

Attractive Projects Derived From the Olympics 3: Overseas Visitors
Olympics athletics, families, reporters and sports fans all over the world will gather in Tokyo.
The demands for public transportation connecting city to the airports
are likely to increase. Department sales and profit are expected to rise
too.

Risks to the Olympic Projects
According to the estimates from Olympics and Paralympics Bidding
Committee, the resulted Olympics-economic effects for Japan will be
approximately 7 trillion yen from building construction and the increase
of land value by the 2020. Other the other hand, this is only an annual
0.3% GDP increase for 7 years which is considered a limited
improvement. In addition, the positive impacts on stock value will vary
by industry - caution should be taken while investing in the
non-infrastructure related and non-real-estate related business.

Economic Effects on the Olympics
What makes it attractive to host the games? To promote the national
dignity and to be an attribute for the country, though there are
criticisms as the bidding for Olympics costs a significant amount of
money. Followings are the resulted numbers from past events:

1. Tokyo Olympic (1964)
The 18th Summer Olympics was held in Tokyo, Japan on October 10th,
1964. It was the first time Olympics came to Asia. This event also
delivered an important message to the world: Japan had recovered from
World WarⅡ. It was a national project involving approximately 28.1
billion yen.
The Tokyo Olympics also created an opportunity for Japan to join the
Organization for Economic Co-operation and Development (OECD). A huge
amount of fund was invested in the athletic facilities and the traffic
network in Japan. To keep tack of game process, the demand of mobile TV
went up. The sales of color televisions also increased. This positive
effect from Olympics was known as “Olympic economic boom.”

2. Beijing Olympics (2008)
It was reported that China also had an Olympic economic boom from
Beijing Olympics. According to the preliminary study by Nomura
Securities Co., Ltd., during year 2002 to 2008, the Olympics generated
960 billion yuan to China (approximately 14.9 trillion yen) – 308.1
billion yuan (approximately 4.8 trillion yen) and 308.1 billion yuan
(approximately 4.8 trillion yen) from direct economic and indirect
economic effects, respectively.
The development of athletic facilities in China, construction of
basic facilities and increase of visitors brought more than seven times
economic effects than Athens Olympics did.
Furthermore, according to the Beijing Olympic Economy Research
Association, total direct income during the Beijing Olympics was
approximately 2 billion US dollars (212.3 billion yen). Based on China
Statistical Information Network and Bureau of Statistics of Beijing, the
annual average growth rate of GDP in Beijing was 11.8% from 2005 to
2008, the so-called “Olympics Input,” and was 0.8% higher than the “11th Five-year Plan.”

3. London Olympics (2012)
In July 2013, the British government announced that the 2012 London
Olympics generated 99 billion GBP (approximately 1.5 trillion yen) to
the country. This was more than the cost of hosting, 89.2 billion GBP
(approximately 1.3 trillion yen).
Above figures also include total amount from new contracts of
companies, the increase in sales and new investment from overseas one
year after the Olympics.
However, some analyses on targeted projects indicate that the figures were inflated to be appealing.

Over the past year, we have seen clear signs of a recovery
in the global real estate investment market. Global investment in
commercial real estate exceeded $100 billion in 4Q of 2010, and jumped
to $147 billion in 4Q of 2012.

This increased activity in global property significantly
affects the Japan domestic real estate market. At this time, we would
like to elaborate on the main players who support the Japan real estate
market.

Booming real estate market, fuelled in part by lack of supplyBefore expanding on the main players in the Japanese real
estate market, lets see briefly the real estate market in the Tokyo
metropolitan area.
First of all, there is limited supply. The reason is simple. Many new
development projects were frozen after the global financial crisis of
2008. After most of these projects were completed in 2012, the pipeline
of new projects has shrunk significantly.
In addition, even though it has been more than 20 years since the
collapse of the Japanese asset bubble, property prices then were so high
that if a property purchased in 1989 were to be sold today, it would
still likely crystallise a significant loss.
Moreover, because banks are not always keen to finance real estate
investments, investors will typically sell and cash out quickly when
they can make just a small profit. As a result, blue-chip suburbs in the
Tokyo metropolitan area have been owned by major real estate companies
and their related REITs for a very long time.

Main player #1 who support the growing interest in Tokyo real estate: foreign-affiliated funds and banksWhen the mini-bubble economy burst in 2008, foreign funds
bought many landmark properties in the Tokyo area, investing JPY ¥100B
(USD$1B). Although foreign fund managers are still keen to invest
further, the supply is limited.
As a result, some foreign fund managers are now looking to invest in
condominiums, hotels and industrial facilities in other major Japanese
regional cities such as Osaka and Fukuoka.
Although foreign-affiliated funds and banks are not able to invest as
much as they would have hoped to so far in Japanese real estate, foreign
interest in the Japanese real estate market is not a recent phenomenon .
For example, Goldman Sachs has started reinvesting in Japanese real
estate since May 2012, to the tune of JPY ¥400B (USD$4B) in the past 3-4
years. Moreover, in June 2012, American fund manager Fortress
Investment Group LLC announced that they would increase their investment
in Japanese real estate to JPY ¥80 billion (USD$800M) in 2012.
Foreign-affiliated funds and banks are keen to increase exposure to
Japanese real estate because many Japanese companies moved offices
between 2011 to 2012. Since the Great East Japan Earthquake of 2011,
demand for office space that are newer, sturdier, and more able to
withstand earthquakes has grown – and is projected to continue to grow.
On the other hand, since the supply of new office space is projected to
be very limited from 2013 onwards, it appears likely that rental yields
for Japanese office space should increase in the near future, especially
in the Tokyo metropolitan area.

Main player #2 who support the growing interest in
Japanese real estate: J-REIT ( ‘REIT’ is the acronym for “Real Estate
Investment Trust” and ‘J-REITs” invest only in Japanese real estate)REITs are publicly listed Investment Trusts which invest only
in Real Estate. Several years ago, the major buyers in Japan domestic
real estate market were corporations-developers and foreign-affiliated
funds. But now the domestic REIT is the biggest player in the real
estate space. Some foreign investors participate in Japanese real estate through J-REITs.
In the past, major backers of J-REITs were mainly domestic high-net
worth private investors and foreign investors. But now local banks and
Shinkin bank are the major investors in J-REITs.

Main player #3 who support the growing interest in
Japanese real estate: The local banks and Shinkin bank The local banks
and Shinkin bank entered the REIT market before the 2008Lehman collapse, and unfortunately suffered major losses at
that time. But now they have again re-entered the real estate market as
tremendous excess liquidity in the Japanese banking system again
searches for higher returns.
Also, it appears that they are positive not only on REIT but also for
financing related to real estate. It appears that new loans for real
estate investment is now declining, so many investors are now
considering refinancing their loans to reduce their borrowing costs.

Main player #4 who support the growing interest in Japanese real estate: Wealthy individual Asian investorsCurrently, the high-grade condominium sector in the Tokyo
metropolitan area is finding strong interest with some individual Asian
high net-worth investors. Japanese monetary easing (“Abenomics”)and the
depreciating Japanese Yen has made Japanese real estate much more
attractive to wealthy Asian investors.
In the past, condominiums in the Tokyo metropolitan area were out of
reach of most foreign investors and were labelled “the most expensive in
the world.” However, since the Heisei bubble economy burst (around
1991), prices have fallen very significantly, but have remained stable
and appeared to have bottomed out over the past several years.
On the other hand, other major Asian cities have experienced boom times
since the beginning of 2000. Real estate prices in Hong Kong and
Singapore have more than doubled since 2000, and in some locations have
exceeded the median price of Tokyo.
Wealthy Asian investors, especially those from China, typically prefer
to invest in “real” assets such as gold or real estate. With real estate
prices in Shanghai and Hong Kong soaring each year, Tokyo now look
increasingly attractive.
Yen depreciation and the continued appreciation in the Chinese Yuan also
makes Japanese real estate even more attractive. It appears that assets
priced between JPY 50 to 70 million (USD$ 500,000-700,000) are most
popular with wealthy Asian investors.

Main player #5 who support the growing interest in Japanese real estate: The corporate pension fund and SWFsThe corporate pension fund and SWF (foreign governments’
Sovereign Wealth Fund) who have at least JPY ¥100M class investment
resources are now proliferating. Many foreign countries’ SWFs are now
allocating a bigger chunk of their investment portfolio to investments
in Japan.
The corporate pension fund can be a major player, especially corporate
pension funds from developed nations have expanded rapidly into the
Japanese real estate sector since 2012. For example, a Canadian pension
scheme, with assets of C$16 billion, has increased its portfolio
weighting in Japanese real estate investment from 4.9% in 2007 to 10.9%
in 2012. In the US, a California corporate pension fund, with assets in
excess of $22 billion, has significantly increased its portfolio
emphasis on real estate investment from 3.5% in 2009 to 10.5% in 2012.
Many pension funds, be they corporate or SWFs, are increasingly
targeting real estate investments outside of their own country. Japan in
general, and Tokyo in particular, is seen as a prime target for
consideration on many investors’ radar. Foreign fund managers expect
current positive sentiment in the Japanese real estate market to
continue into 2014.

Tuesday, October 29, 2013

Everyone has their little indulgences. For some, it's their morning Starbucks fix or a $2000 handbag. For others, it's hookers, rack and blackjack.

A sex worker talks to a man outside a hotel in the Geylang red light district in Singapore, February 8, 2013

And it's the latter that are most representative of consumer spending in the most countries economy's, according to Andrew Zatlin of South Bay Research. Zatlin's one-man research consultancy based out of California, whose highly accurate, data-driven methods of forecasting jobs numbers have earned the title of 'The Moneyball of Economics' by the Wall Street Journal.

One of South Bay's products is the Vice Index, which according to Zatlin has an almost 90% statistical correlation with personal consumer spending and leads it by 4 months. The index measures spending on gambling and escorts, which, according to Zatlin, is a highly sensitive barometer for the 'wealth effect', or how rich we're feeling at any given time.

Zatlin's data for the index goes back 15 years and South Bay has been calculating the index for the last 2 years.

And this year, the index has shown a steady downward trend.

"We were seeing it even before the government shutdown, and it's continued to trend downward recently," said Zatlin to Business Insider, "In Q1 of this year, we saw prices of escorts rose 15% at the high end but not at the middle or low end, which proved that the top 1% was doing fine, but not everyone else. This was contrary to the media's narrative of a "booming" economy."

Zatlin would not disclose his sources and methodology for computing escort services pricing.

"During events like the furlough and Sandy you had escorts saying that their phones had stopped ringing. Now I'm not saying that government workers are clients for prostitutes, but when you have 800,000 people out of a job, that affects spending."

According to Zatlin, spending on these vices is part of the "underground economy", which makes up anywhere between 10-15% of the economy in the United States and even higher in countries like Australia and is, understandably, unaccounted for in official statistics. But this data, if you can find it, is extraordinarily representative of consumer spending.

"This part of the economy is based purely on market forces," he noted. "It's all cash-driven and there are almost no barriers to entry. Most importantly, it's purely conspicuous consumption. People spend on vices when they feel like there's a hole burning in their pockets. If you're going to Atlantic City, you're going to hope to win, but you're probably prepared to lose. It's literally throwing money away."

Because of this, vices are the first thing people stop spending on when times are bad, which makes it a good way to measure the "wealth effect", or how secure people are feeling about their wealth.

Spending on luxury goods is a similar 'canary in the coal-mine' indicator, and also a good measure of conspicuous consumption. However, Zatlin believes vice spending is more demographically and socio-economically representative. Only the 1% can buy a yacht, but spending on escorts can range from the very high end to "low-end", and can provide a geographically and socio-economically diverse set of data points.

More importantly, Zatlin believes the Vice Index has more relevance than many others that were formulated decades ago.

"Everyone smirks when they hear about this, but the regular indices are all using data points that are old, and in many cases, not representative of today's economy."

Thursday, October 24, 2013

"The starting point of any financial analysis must surely be a consideration of the economic cycle: not just where we stand within the current cycle, but more importantly, where that cycle fits within broader economic history," writes Paul Jackson in his final note to clients in his role as an equity strategist at Société Générale.

The note — titled "Swan song: 12 pictures you can't ignore" — builds on the bank's recent call for clients to rotate out of U.S. stocks and into European stocks. The SocGen asset allocation teampredicts the S&P 500 will fall by around 15%when the Federal Reserve winds down its quantitative easing program, then go nowhere for years.

"For now, equity valuations in Europe are attractive and with a bit of economic growth the next few years could be quite rewarding," says Jackson. "The immediate risks are that growth does not materialise in Europe or that the eurozone project unravels. For the longer term I worry more about latent inflation risks and central banks getting behind the curve. As bond markets react to that policy error, the folly of forcing banks, insurance companies and pension funds to hold so many bonds will become apparent. But that is for another day."

1. Current inflation trends are boringly normal.

Reuters, Ecowin, SG Cross Asset Research/Equity Strategy

"Inflation may feel low compared to the history through which most of us have lived, but in a broader context it is boringly normal," says Jackson. "Maybe without recent extra-ordinary policy settings, we would now be experiencing deflation, but we will never really know."

2. Inflation has little effect on stock market valuation.

Reuters Ecowin, SG Cross Asset Research/Equity Strategy

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"Not only is the current level of inflation boringly normal, the valuation of the U.S. equity market, though elevated, is hardly exorbitant (to be fair, the only times it has been above the current level was during 1928/29 and over the last 20 years)," says Jackson. "With the sort of inflation regime experienced over the last 15 years, history suggests just about any valuation level is possible."

3. History suggests low returns ahead for U.S. stocks.

Reuters Ecowin, SG Cross Asset Research/Equity Strategy

"The Shiller P/E may not be at an extreme, but history suggests the current level is associated with low single-digit future returns," says Jackson.

4. U.S. companies may be in for disappointment.

Reuters Ecowin, SG Cross Asset Research/Equity Strategy

"We could try to justify stretched valuations by the improved economic outlook and the consequent positive news for profits," says Jackson. "However...[the chart] shows that profits usually sink over the coming five years when starting from such a strong level. This makes sense given that competitive pressures will rise when profits are strong (new capital is committed) and that labour will claim a bigger share of the pie when the economy is doing well (and unemployment falls)."

5. Europe's economy has room to improve.

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Reuters Ecowin, SG Cross Asset Research/Equity Strategy

"Europe would appear to be at a disadvantage compared to the U.S. when it comes to profitability," says Jackson. "However, that is only natural given the state of the European economic cycle and a glass-half-full interpretation would look forward to higher profits once the European cycle strengthens."

6. A better European economy means better European profits.

MSCI, Datastream, SG Cross Asset Research/Equity Strategy

"[This chart] suggests European profits may be about to enter a new upswing, as the economy starts to grow again (profits rarely expand without economic growth, but that once output grows there is a geared effect on income)," says Jackson. "The acceleration in U.S. profits that occurred in 2009/10 may be about to occur in Europe (in a muted fashion)."

7. European stocks look attractive.

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MSCI, Datastream, SG Cross Asset Research/Equity Strategy

"A number of things can be said on the basis of this chart," says Jackson. "First, the correlation between the two data series is pretty good – the cyclically-adjusted dividend yield appears to have predictive power when it comes to future returns; second, the higher the yield the better the future returns and, third, the current yield has historically been associated with future five-year returns of around 12%, which is about twice the norm."

8. Many metrics suggest Europe is undervalued.

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MSCI, Datastream, SG Cross Asset Research/Equity Strategy

"It is hard to conclude from the above chart that unconventional central bank policies have caused a bubble in stock markets," says Jackson. "Some indices may be at record highs, but so is my age. It is something that we have to get used to: markets that are nominal in value and that trend up over time will frequently be at record highs; my age hits a record level every day, though with no sign of a healthy correction! It is important to compare equity indices to the underlying profits and dividends that support them and, on that basis, are far from record levels."

9. The real bubble is in the bond market.

Reuters Ecowin, SG Cross Asset Research/Equity Strategy

"Where central bank policies have caused a bubble is in bond markets – not surprising as those are the instruments that are bought before the funds end up back with the central bank in the form of excess reserves," says Jackson. "The previous chart shows that bond yields have rarely been this low in the period since 1800. Indeed, the only other time was when the Fed was also manipulating the market during and after WW2."

10. The ECB's balance sheet has been shrinking for a while.

Reuters Ecowin, SG Cross Asset Research/Equity Strategy

"What is really interesting, and little appreciated, is that the decline in the ECB balance sheet started in July 2012, even before Draghi’s 'anything it takes' speech, has now brought the balance sheet back in line with where it would have been had the pre-financial crisis trend continued (see trend line)," says Jackson.

11. The euro is getting a boost from ECB inaction.

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Reuters Ecowin, SG Cross Asset Research/Equity Strategy

"[The decline in the ECB balance sheet] is no doubt why the euro has confounded the bears (including us) – the chart below suggests the mystery is rather why it is not even stronger," says Jackson.

12. The question is what happens when the Fed pulls back.

Reuters Ecowin, SG Cross Asset Research/Equity Strategy

"How much good has this done? During the 1930s and 1940s, each jump in monetary base growth was followed three to four years later by an uptick in inflation and the upward drift in inflation in the 1960s and 1970s was preceded by acceleration in the monetary base," says Jackson. "This time around, the effect on inflation appears to have been negligible (so far). An alternative interpretation is that without these policy actions deflation would have resulted. If that is the case, the fact that policy has remained so loose could be stoking up inflation risks."

A Complete History Of American Economic Performance Since 1790 In Two Charts

IMF researchers Vadim Khramov and John Ridings Lee have developed a new macro indicator called the "Economic Performance Index" — a measure that combines data on inflation, unemployment, government deficits, and GDP growth.

"Though structurally simple, theEPI is a powerful macro indicator that clearly measures the performance of the economy’s threeprimary segments: households, firms, and government," write Khramov and Leein an IMF working paper. "The EPI comprises variables that influence all three sectors simultaneously: the inflation rate as a measureof the economy’s monetary stance; the unemployment rate as a measure of the economy’s production stance; the budget deficit as a percentage of total GDP as a measure of the economy’s fiscal stance; and the change in real GDP as a measure of the aggregate performance of the entire economy."

The basic calculation goes something like this: start with a "perfect" score of 100, then subtract the inflation rate, the unemployment rate, the government budget deficit as a percentage of GDP, and add back the real GDP growth rate (it's slightly more complicated than that — check out the paper for details).

The annotated charts below plot the history of the U.S. EPI since 1790.

Wednesday, October 9, 2013

A U.S. debt default that lasts for more than a couple of days could
potentially cause a financial crash unlike anything that the world has
ever seen before. If the U.S. government purposely wanted to
damage the global financial system, the best way that they could do that
would be to default on U.S. debt obligations. A U.S. debt
default would cause stocks to crash, would cause bonds to crash, would
cause interest rates to soar wildly out of control, would cause a
massive credit crunch, and would cause a derivatives panic that would be
absolutely unprecedented. And that would just be for starters. But
don't just take my word for it. These are the things that top financial
experts all over the planet are saying will happen if there is an
extended U.S. debt default.
Because they are so close together, the "government shutdown" and the
"debt ceiling deadline" are being confused by many Americans.
As I wrote about the other day,
the "partial government shutdown" that we are experiencing right now is
pretty much a non-event. Yeah, some national parks are shut down and
some federal workers will have their checks delayed, but it is not the
end of the world. In fact, only about 17 percent
of the federal government is actually shut down at the moment. This
"shutdown" could continue for many more weeks and it would not affect
the global economy too much.
On the other hand, if the debt ceiling deadline (approximately
October 17th) passes without an agreement that would be extremely
dangerous.
And if the U.S. government is eventually forced to start delaying
interest payments on U.S. debt (which could potentially happen as soon
as November), that would be absolutely catastrophic.
Once again, just don't take my word for it. The following are 12
very ominous warnings about what a U.S. debt default would mean for the
global economy...#1Gerald Epstein, a professor of economics at the University of Massachusetts Amherst: "If the US does default, that will make the Lehman Brothers bankruptcy look like a cakewalk"#2Tim Bitsberger, a former Treasury official under President George W. Bush: "If we miss an interest payment, that would blow Lehman out of the water"#3Peter Tchir, founder of New York-based TF Market Advisors: "Once the system starts to break down related to settlement and payments, then liquidity disappears, as we saw after Lehman"#4Bill Isaac, chairman of Cincinnati-based Fifth Third Bancorp:
"We can’t even imagine all the things that might happen, just like
Henry Paulson couldn’t imagine all the bad things that might happen if
he let Lehman go down"#5Jim Grant, founder of Grant’s Interest Rate Observer: "Financial markets are all confidence-based. If that confidence is shaken, you have disaster."#6Richard Bove, VP of research at Rafferty Capital Markets: "If they seriously default on the debt, what we're really talking about is a depression"#7Chinese vice finance minister Zhu Guangyao:
"The U.S. is clearly aware of China's concerns about the financial
stalemate [in Washington] and China's request for the US to ensure the
safety of Chinese investments."#8The U.S. Treasury Department:
"A default would be unprecedented and has the potential to be
catastrophic: credit markets could freeze, the value of the dollar could
plummet, U.S. interest rates could skyrocket, the negative spillovers
could reverberate around the world, and there might be a financial
crisis and recession that could echo the events of 2008 or worse"#9Goldman Sachs:
"We estimate that the fiscal pull-back would amount to 9pc of GDP. If
this were allowed to occur, it could lead to a rapid downturn in
economic activity if not reversed quickly"#10Simon Johnson, former chief economist for the IMF: "It would be insane to default, but it’s no longer a zero-percent probability"#11Warren Buffett about the potential of a debt default: "It should be like nuclear bombs, basically too horrible to use"#12Bloomberg:
"Anyone who remembers the collapse of Lehman Brothers Holdings Inc.
little more than five years ago knows what a global financial disaster
is. A U.S. government default, just weeks away if Congress fails to
raise the debt ceiling as it now threatens to do, will be an economic
calamity like none the world has ever seen."
A U.S. debt default could be the trigger for the "nightmare scenario"
that so many people have been writing about in recent years. In fact,
it could greatly accelerate the timetable for the inevitable economic
collapse that is coming. A recent Yahoo article described some of the things that we would likely see in the event of an extended U.S. debt default...

A
default would upend money markets, destroy bond funds, slam the brakes
on lending, cause interest rates to spiral, make our banks insolvent,
and deal a blow to our foreign trading partners and creditors around the
globe; all of which would throw the U.S. and the world into economic
disarray.

And of course stocks would crash big time. Deutsche Bank's David
Bianco believes that if the U.S. government starts missing interest
payments on U.S. Treasury bonds, we could see the S&P 500 go down to 850 by the end of the year.
There would be almost immediate panic among ordinary Americans as well. In fact, it is being reported that some banks are already stuffing their ATM machines will extra cash just in case...

With
just 10 days left to raise the debt ceiling and congressional
Republicans threatening to force the government to default on its
obligations, banks are taking some dramatic steps to prepare for the
economic chaos that would result should the brinkmanship continue.

The Financial Times reports that one major U.S. bank has started
stuffing its automatic teller machines with extra cash in preparation
for a possible bank run from panicked depositors. The New York Times
reports that another bank is weighing a plan to advance funds to
customers who rely on Social Security and other government payments that
could stop in the event of a default.

Let's hope that cooler heads will prevail and that a U.S. debt default will be avoided.
Unfortunately, it appears that the Democrats are absolutely
determined not to be moved from their current position a single inch.
They have decided to refuse to negotiate and demand that the Republicans
give them every single thing that they want.
And who can really blame them for adopting that strategy? After all,
it has certainly worked in the past. Whenever Democrats have stood
united and have refused to give a single inch, the Republicans have
always freaked out and caved in eventually.
Will this time be any different?
The funny thing is that once upon a time, Barack Obama was adamantly against any increase in the debt limit.Americans are extremely frustrated to say the
least with Obama et al, as the rest of the world pulls together and
moves forward constructively. lets look at the larger picture in the US
-in order to get a clear view,this is what it looks like from outside the US (in very basic terms).
American foreign policy is always the same and the only thing that
changes when a new president comes to power is the name of a country
that gets bombed.for example:oldman Bush bombed Iraq,Clinton bombed
Yugoslavia, George W Jr bombed Afghanistan and Iraq,Obama bombed Libya
& almost starts WWIII in Syria and today Obama bombing Somalia.
Does anyone really believe that another US president will change
imperial policy? until the American public wake the fuck up and take
personal responsibility and say: enough is enough!!! nothing is gonna
change in the USSA!The funny thing is that once upon a time, Barack Obama was adamantly against any increase in the debt limit. check this out!

But now Obama says that it is so unreasonable to be opposed to a debt
limit increase that any negotiations are out of the question.
So which Obama is right?
If the Democrats will not negotiate, a debt default could still be avoided if the Republicans give in.
And that is what they always do, right?
Perhaps not this time. Just check out what John Boehner had to say on Sunday...